Garmin Ltd.

Good morning, ladies and gentlemen, and welcome to the Garmin Limited Fourth Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero, on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Terry Seck, Manager of Investor Relations.

Good morning, everyone. We would like to welcome you to Garmin Limited's fourth quarter 2019 earnings call. Please note that the earnings, press release, and related slides are available at Garmin's investor relations site on the Internet at www.garmin.com. An archive of the webcast and related transcripts will also be available on our website. This earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business. Any statements regarding our future financial position, revenues, earnings, gross and operating margins, and future dividends, market shares, product introductions, future demand for our products and plans, and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of the risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K filed with the Securities and Exchange Commission. Presenting on behalf of Garmin Limited this morning are Cliff Pimble, President and Chief Executive Officer, and Doug Besson, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Pimble.

Thank you, Terri, and good morning, everyone. As announced earlier today, we finished 2019 strong, with revenue for the quarter increasing 18%. over the prior year to $1.1 billion. Fitness, aviation, marine, and outdoor collectively increased 24% over the prior year. Gross margin was 58% compared to 58.9% during the prior year. Operating margin improved to 25.1%, and operating income increased 24% over the prior year. These results generated GAAP EPS of $1.89 and pro forma EPS of $1.29 in the quarter, an increase of 26%. Looking briefly at our full year performance, 2019 was a remarkable year of accomplishments. Revenue increased 12% to over $3.7 billion, representing a new record for Garmin. Combined revenue from fitness, aviation, marine, and outdoor increased 18%. Gross margin improved to 59.5%. Operating margin improved to 25.2%. And operating income increased 21% to $946 million, another record achievement. This resulted in GAAP EPS of $4.99 and pro forma EPS of $4.45, an increase of 21% over the prior year. In light of these strong results, at our upcoming annual meeting, we'll be asking shareholders to approve an annual dividend of $2.44 a share, representing a 7% increase. Doug will discuss financial results in greater detail in a few minutes, but first I'd like to highlight some achievements from the past year and our outlook in each of our five business segments. 2019 was an outstanding year for our fitness segment, with each product category performing well. During the year, we launched sweeping updates to our running, wellness, and cycling product lines, and these products were strong contributors in the final quarter of the year. In addition, our recent acquisition of tax brought new revenue to the segment and expanded our ability to serve cycling customers indoors and outdoors all year long. For the year, revenue from fitness increased 22%. exceeding the $1 billion threshold for the first time. Gross and operating margins were 51% and 18% respectively, and operating income increased 6% over the prior year. In 2020, we plan to build on this momentum by launching new feature-rich products while also expanding the distribution of tax products. As a result, we anticipate revenue from the fitness segment will increase approximately 10% for the year. 2019 was an extraordinary year for our aviation segment. ADS-B was a significant contributor to growth, but on a combined basis, other categories contributed even more. We experienced growth in aftermarket systems as customers recognized the strong value proposition of modern cockpit electronics. We also experienced growth in OEM systems driven by popular new aircraft and from increasing demand for trainer aircraft. For the year, revenue from aviation increased 22%. Gross and operating margins were 74% and 34%, respectively, and operating income increased 24% over the prior year. For 2020, we anticipate that revenue from aviation will be comparable to that of 2019 as growth in aftermarket systems is offset by declining ADS-B revenues. Trends in the broader OEM market should be in line with those of 2019. We anticipate that the early part of the year will be the strongest, driven by residual ADS-B demand, followed by a weaker back half as we move past the inevitable peak of the ADS-B cycle. We are focused on opportunities that lie ahead, and we are confident in the long-term growth prospects for our aviation business. Our marine segment delivered another year of impressive results as market growth and market share gains boosted our performance. From time to time, we've highlighted our halo products and technologies, achievements that speak for themselves and cast a positive glow across the entire Garmin brand. Our Panoptix LiveScope sonar system is one example that is generating excitement and strong sales across a broad range of products. We also introduced our first electric trolling motor, which is a new product category for us and brings game-changing new features to the market. For the year, revenue for marine increased 15%, exceeding the $500 million threshold for the first time. Gross and operating margins improved to 60% and 22%, respectively, and operating income increased 73%. Looking forward, interest in our products remains very strong entering the 2020 boating season. In addition, our market share in the OEM category will grow, as some of the most respected boat brands adopt our products as standard equipment on their 2020 models. With this in mind, we anticipate revenue from the marine segment will increase approximately 10% for the year. Outdoor delivered another strong year of product achievements and revenue growth. During the year, we launched the Mark Luxury Watch Series, and we completely refreshed the Phoenix Adventure Watch series. We also introduced versions of the Phoenix with passive solar recharging technology, which has resonated positively with the market. For the year, revenue from outdoor increased 13%. Gross and operating margins were 65% and 36%, respectively, and operating income increased 15% over the prior year. Looking ahead, we believe that the Adventure Watch category will continue to grow, driven by further innovation and new utility. We also believe that inReach will continue to grow, as more people appreciate the convenience and life-saving potential of two-way remote communication. With these things in mind, we anticipate revenue from the outdoor segment will increase approximately 10% for the year. Our auto segment also delivered many strong achievements in 2019. We integrated the Alexa Digital Assistant into our P&D product line, and we entered a new product category with the launch of the Overlander navigation device. At the recent Consumer Electronics Show, we announced the new DashCam Tandem that captures quality video both inside and outside the vehicle, regardless of lighting conditions. During the year, we also secured a significant backlog of new business as a Tier 1 supplier to the world's most respected automakers. For the year, revenue from auto decreased 14%. Gross and operating margins improved to 47% and 10% respectively, and operating income increased 50% over the prior year. Looking ahead, we believe that the negative trends in auto will moderate as contributions from specialty categories increase, and as previously announced, OEM programs contribute in the back half of the year. 2020 will also be a year of accelerated investment to support recently awarded programs. We are equipping our manufacturing facility in Olathe for auto OEM production, and we are opening a new manufacturing facility in Europe that will be dedicated to auto OEM production. We also plan to hire additional resources in engineering and operations to support these complex, intensive development programs. With these things in mind, we anticipate that revenue from the auto segment will decrease 5% for the year. In summary, we are excited about the opportunities we see in every business segment. For 2020, we anticipate consolidated revenue will reach approximately $4 billion, up 6% year-over-year, as growth in fitness, outdoor, and marine more than offset a slight decline in the auto segment. We anticipate that revenue in aviation will be comparable to that of 2019. We anticipate gross margin of approximately 59.2% and operating margin of approximately 23.5%, reflecting our plan for an increased level of investment to support long-term growth initiatives. We anticipate a full-year pro forma effective tax rate of approximately 10%, resulting in pro forma earnings per share of approximately $4.60. Our estimated tax rate will be favorably impacted by an intercompany transaction to migrate the ownership of our consumer intellectual property from Switzerland to the United States over the next several years. Doug will be providing more details on this in a few moments. So that concludes my remarks. Next, Doug will walk you through additional details on our financial results and outlook.